• Overview. PetGas 1Q22 core profit declined 1.3% qoq and 19% yoy to RM437m mainly due to higher fuel gas cost impacting its Utilities segment and JV company as well as higher effective tax rate. The effective tax rate rose to 27.1% (1Q21: 20.9%, 4Q21: 25.7%) due to the imposition of the prosperity tax in 2022.

• Against estimates: Inline. 1QFY22 core profit of RM437.6m was inline with our and consensus’ forecast at 22.1% and 22.5% respectively.

• Dividends. A 16 sen DPS was declared which is similar to 1QFY21. This implies payout of 77.1%. We estimate a total DPS of 84 sen for FYE22, translating into a dividend yield of 5%.

• Outlook. We are positive on PetGas earnings. We expect earnings performance to remain resilient despite the ongoing pandemic as its business structure is secured by long–term contracts. For FYE22, the GT and RGT segment will continue to contribute steadily to earnings under the RP1, while GP segment results remain sturdy thanks to its 2 nd term of a 20-year GP Agreement until 2023. To recap, the Gas Transportation (GT) tariff in 2022 will be at RM1.128/GJ while the Regasification (RGT) tariff for RGTSU and RGTP at RM3.455/MMBtu and RM3.485/MMBtu respectively.

• Our call. Maintain BUY on PetGas with unchanged TP of RM24.09 which implies 25.6x FY22F P/E. We like PetGas’ as defensive stock owing to its (i) long-term earnings visibility and (ii) strong free cash flow generation which offers an attractive dividend yield of c.5%

Source: BIMB Securities Research - 20 May 2022